FASB Balances Revenue Recognition Guidance With Principles

Editor's note: On April 14, FASB and the IASB
said the priority projects on revenue recognition, leases and
financial instruments, scheduled to be completed in June, would
require a few more months of work. No specific deadline was set for
the projects. Read "FASB, IASB Announce
Delay on Priority Projects" for more information.

In
the first of a five-part exclusive JofA interview,
FASB Chairman Leslie Seidman shares her thinking on how the board is
likely to deal with calls for more detailed implementation guidance
for its new standard on revenue recognition.

JofA:How are FASB and the IASB balancing the calls,
particularly from the U.S., for more implementation guidance on
revenue recognition, for example, as opposed to a higher set of
principles that other countries and jurisdictions generally
would be comfortable with?

Seidman:
You’re hitting on a very important issue there. If you take revenue
recognition as a particular example, the overall thrust of the
comment letters from the U.S. was that we had not included enough
implementation guidance in the exposure draft. But if you look at
the general sense of the comment letters coming in internationally,
they thought we had provided too much.

It is
a challenge we’re going to need to deal with. We have some unique
environmental issues in the United States in the sense that we have
a very robust audit function, review function and enforcement
function. So to prepare financial statements in the United States,
people would like to have some level of comfort that they have
enough guidance to feel confident they have prepared a financial
statement in accordance with the intent and spirit of the
standards.

At
the end of the day, I’d like to make sure that the standards have
enough implementation guidance so that people around the world feel
comfortable that they understand how to implement the standard. In
the event that we don’t believe that the standard we end up with has
enough for the U.S., I think we can pursue alternative means by way
of nonauthoritative examples, or other sorts of educational
materials to supplement whatever the converged standard says. We
would take care that these materials are consistent with the spirit
of the standard, so that we don’t end up with a U.S. variety, if you
will, of the standard.

JofA:
Still using the revenue recognition example, is it possible that
the comment letters are the beginning of a groundswell of
requests for guidance? How would FASB respond to that?

Seidman: It’s
important to note that we are in the middle of our re-deliberations
of the proposal on revenue recognition. The ED contained some pretty
significant changes relative to U.S. GAAP. I think that’s partly
what is behind the request for a significant amount of
implementation guidance. As we work through these issues, to the
extent that we were to change the proposal to be more familiar to
U.S. constituents, I think it would diminish the need for extensive
implementation guidance. That’s an important thing to keep our eye
on as we go forward with this project.

I
think that we are not inclined to provide detailed implementation
guidance on revenue recognition similar to what had existed in the
past, where we had over 100 pieces of specific guidance on revenue
recognition to address various types of transactions in a variety of
industries.

I
think that if we, through our outreach activities for the remainder
of the process to finalize the standard, become aware that certain
industries are struggling with how you would apply the standard in
their industry, we can try and package that in ways that would
communicate in a more general way to all industries, so that they
understand how to implement the standard, but we don’t end up with a
cookbook in response to all these various requests.

JofA:Is it still realistic at this point for the revenue
recognition project to be finished by the end of the second quarter?

Seidman: We
are working through the issues on revenue recognition very
thoughtfully and expeditiously. So far, we appear to be on track to
have concluded our substantive discussions of the issues raised in
the exposure draft in that time frame. What we’re going to need to
do, though, along the way is keep a vigilant eye on the extent of
change that we end up with relative to what we exposed, also
relative to current U.S. GAAP so that we know whether we need to
conduct additional outreach to be comfortable that the standard we
end up with is well understood and operational and viewed as an
improvement by investors. I’m not at a point right now where I know
the extent of outreach that we’re going to think is necessary. That
could extend the time frame.

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